A 25-year-old with a first full-time salary and a 60-year-old nearing retirement face very different tax questions. For the younger saver, who may be in a lower tax bracket now than later in life, the Roth IRA often draws attention. Contributions are made with money that has already been taxed, and qualified withdrawals in retirement are tax-free. The appeal is clear. So are the limits.
How It Works
With a Roth IRA, there is no upfront tax deduction. The benefit comes later: if the account meets IRS requirements, both the contributions and the growth can be withdrawn tax-free. Traditional accounts do the opposite, offering a possible deduction now and taxing withdrawals later.
A basic illustration shows why the tax-free feature can be powerful, though not guaranteed. Suppose a saver contributes the 2026 maximum of $7,500 each year for 30 years and the account earns a hypothetical 6 percent annually. The balance would be about $593,000, of which $225,000 would be contributions. That return is an assumption for illustration, not a forecast; actual results could be higher or lower, and markets can lose money. In a Roth, the growth portion is generally not taxed on qualified withdrawal.
The 2026 Numbers
The 2026 IRA limit is $7,500, or $8,600 for those 50 and older, and it applies to Roth and traditional IRAs combined. Unlike a traditional IRA, a Roth has an income cap on who can contribute directly.
For single filers and heads of household, the Roth contribution phase-out range for 2026 is $153,000 to $168,000 of modified adjusted gross income, up from $150,000 to $165,000 in 2025. For married couples filing jointly, the range is $242,000 to $252,000, according to a summary of the IRS announcement. Within the range, the allowed contribution shrinks gradually; above it, a direct contribution is not permitted. Married people filing separately who lived with a spouse during the year face a much narrower range, from $0 to $10,000.
The Fine Print on Withdrawals
Roth rules distinguish between contributions and earnings. Money a saver contributed can generally be withdrawn at any time without tax or penalty, because it was taxed already. Earnings are different. To take earnings out tax-free, the withdrawal generally must be a qualified distribution: the account must have been open for at least five years, and the owner must be at least 59½ or meet another condition, such as disability.
Withdrawing earnings early can bring income tax and a 10 percent penalty, with exceptions. The five-year clock and the exceptions have details that can change the outcome, so savers should check IRS guidance or consult a tax professional before tapping the account.
No Required Distributions for the Original Owner
Roth IRAs also differ from traditional IRAs in that the original owner is generally not required to take minimum distributions during their lifetime. That can make the account useful for people who want flexibility in how and when they spend, or who want to leave assets to heirs. Inherited Roth accounts have their own rules.
What Roth Does Not Do
The trade-off is giving up today's deduction. A saver in a high bracket now who expects a lower bracket in retirement might end up paying more tax with a Roth than with a traditional account. Tax rates, brackets and rules can change, so assumptions about future taxes are guesses. The decision is often not all or nothing; some savers split contributions between the two types, and a later article in this series compares them in depth.
Higher earners are not necessarily shut out. Some use strategies that involve converting traditional IRA money to a Roth, which carry their own tax consequences. Those approaches are complex and are best discussed with a tax professional.
Investment Risk Remains
Whether an account is a Roth or traditional, the money inside is invested and can fall in value. Tax-free growth only helps if there is growth. A saver who panics and sells during a downturn can lock in losses that no tax rule can undo.
The Bottom Line
For younger savers with decades ahead and modest current incomes, a Roth IRA offers the possibility of tax-free money in retirement, paired with contribution limits, income caps and withdrawal rules that need care. As with any account, it works best when matched to a person's actual situation, rather than followed as a rule of thumb.
